Don’t rush with cash transfers as it needs preparation

Cash transfer in various forms has been used in many countries to target support to the poor and achieve social objectives. In India, its introduction has generated more passion than rational debate. The scheme is not a magic bullet, but if properly implemented and targeted, cash transfer is a very sensible instrument of social assistance. In India, the rationale for introducing the scheme seems to be to check leakages and improve efficiency, and it has the potential to reduce inter-generational transmission of poverty and inequality. It can also be a huge improvement over the costly product-based subsidies whose main benefits do not go to the poor.

Cash transfers were first introduced by Mexico in the 1990s to help the rural poor cope with the effects of the debt crisis. Since poor families were pulling children out of school and were neglecting healthcare, cash transfers were made conditional on keeping children in school and ensuring health inoculations — hence the term Conditional Cash Transfers (CCTs). The effectiveness of these schemes led to others adopting them, especially in Latin America.

Brazil later expanded CCTs into a permanent programme called the Bolsa Familia, to help change structural poverty and reduce inequality. It is seen as a major reason for reduced poverty.

Turkey introduced a crisis-response CCT in 2001 during a major financial crisis. It helped increase school attendance, especially for girls. Turkey too decided to make it a permanent part of its social assistance programme.

Cash transfer schemes in Latin America and Turkey took 2-3 years to implement before the teething problems were resolved and were found to suffer more from inclusion rather than exclusion errors. This means the poor were not excluded but some non-poor were included. But this type of error is acceptable.

Countries that have successfully incorporated cash transfers within their development frameworks had three key factors in common: they were not standalone schemes but part of an overall social security framework, they had a well-functioning social services infrastructure in place and were tried and tested for a reasonable period of time before being adopted as a national policy.

Asia has not used cash transfers as a major instrument of social assistance, with the exception of a few such as the Philippines and some smaller schemes in Indonesia, Cambodia and Bangladesh. Instead, many countries have relied on a patchwork of product-based subsidies — food, petrol, gas and kerosene — with various forms of targeting, usually not very effective.

Few realise that India has already used selective conditional cash transfers. Many national and state-level programmes to help girls achieve education, such as the Dhanalakshmi Yojana, Janani Suraksha Yojana and Balika SamFew realise that India has already used selective conditional cash transfers. Many national and state-level programmes to help girls achieve education, such as the Dhanalakshmi Yojana, Janani Suraksha Yojana and Balika Samriddhi Yojana, offer cash incentives to families for sending girls to school.

Other cash transfer schemes aim to empower women and provide them stipends to reach specified goals. Surprisingly, these programmes have not been carefully evaluated. Yet, many experts have already started a heated debate on the merits of cash transfer programmes without looking at how they have worked in India and elsewhere.

The recent introduction of large-scale cash transfers in India is further complicated by the food security debate. Activists are vocal against cash transfers as they see this as a quick-fix instead of improving an inefficient and corrupt public distribution system.

In Latin America, CCTs were introduced as new social assistance in response to a crisis while, in India, cash transfers are in addition to, or more contentiously, a substitute for the plethora of largely product-based subsidies, as in the food and fuel sectors.

Small pilots done by Sewa with the help of UNDP in Delhi that gave poor families a choice between receiving grain or cash show that cash transfers can be aviable option for addressing food security concerns. Families that opted to receive cash instead of access to subsidised grain said they would like to continSmall pilots done by Sewa with the help of UNDP in Delhi that gave poor families a choice between receiving grain or cash show that cash transfers can be aviable option for addressing food security concerns.

Families that opted to receive cash instead of access to subsidised grain said they would like to continue with the cash transfer. They were also able to access better-quality grain and were found to make expenditure choices that did not reduce their nutritional intake. But given India's size, many such pilots are needed in other parts of the country before cash transfers are rolled out nationally, especially as a substitute for existing entitlements.